By Ben Robins - After two or three slower years for private equity activity, especially new fund launches, the industry is regaining momentum with the launch of new fund vehicles, mostly by established players drawing on their existing investor base. While the level of business and size of funds is still well below the levels of 2006 and 2007, the 2011 environment is improved significantly over subsequent years, reflected in an uptick in deal activity.
The recovery in Jersey also reflects increasing confidence among private equity houses that marketing routes will still be available for Jersey-domiciled funds targeting sophisticated investors within the European Union after the Alternative Investment Fund Managers Directive takes effect in July 2013.
At least to begin with, it should remain possible to market existing Jersey products to EU professional investors under national private placement regimes, subject to basic requirements in the directive regarding regulatory co-operation and additional reporting and transparency that the island plans to be ready to comply with from the outset.
At the same time, Jersey is looking further ahead to when funds and managers based outside the EU will be able to benefit from a marketing passport to target investors throughout the union’s member states. Although under the directive this will not be available to ‘"third country’ jurisdictions such as Jersey until 2015 at the earliest, the island is considering embracing the AIFMD brand by putting in place, alongside its existing products, a notionally compliant fund regime by mid-2013 – at the same time the passporting facility becomes available to EU fund domiciles.
Jersey already has internationally accepted levels of regulation, but having an AIFMD-compliant product would send out the message that Jersey is very happy to embrace at the earliest opportunity a new regulatory benchmark set by EU regulators and, no doubt, sought after by some EU professional investors.
In the same way that the Ucits brand has proved itself not just in Europe but in Asia, Latin America and beyond, there is great potential in Jersey, as a seasoned alternative fund domicile, offering a platform for fund managers and promoters from around the world to launch products under the AIFMD brand.
Compliance with the directive is set to have a significant impact on the private equity model – in all likelihood more onerous than on hedge or real estate funds. The so-called asset-stripping rules apply specifically to private equity, while the sector could also be impacted adversely by the additional and costly requirement for an independent depository. Not until Level 2 measures are in place, however, will the full consequences for the industry become clearer.
Jersey’s strategy is to offer compliant structures for private equity houses and professional investors who embrace the directive, while continuing to provide existing products for firms content to stick with private placement distribution, or those targeting non-EU investors. Whatever the response of industry participants, we hope to offer them an appropriate route to market.
Alongside the existing unique range of fund structures, from unregulated funds to Expert and retail funds, an AIFMD-compliant regime would offer the added flexibility demanded by fund promoters seeking an increasingly global investor outreach. Europe is vitally important to Jersey, but our expanded product range should work well in Asia, the Middle East and other international markets. It’s a good position for a reputable and seasoned jurisdiction to be in.
Ben Robins is a partner and head of the global funds practice at Mourant Ozannes